2006/211/EC: Commission Decision of  8 March 2006  establishing that Article 30(1) of Directive 2004/17/EC of the European Parliament and of the Council coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors applies to electricity generation in England, Scotland and Wales  (notified under document number C(2006) 690)   (Text with EEA relevance)
Date: 2006-03-08
Institutions: European Commission
Subjects: England, Scotland, Wales, award of contract, competition, electrical energy, energy production

L 76/6

EN

Official Journal of the European Union

15.3.2006

COMMISSION DECISION

of 8 March 2006

establishing that Article 30(1) of Directive 2004/17/EC of the European Parliament and of the
Council coordinating the procurement procedures of entities operating in the water, energy,
transport and postal services sectors applies to electricity generation in England, Scotland and
Wales

(notified under document number C(2006) 690)

(Only the English text is authentic)

(Text with EEA relevance)

(2006/211/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
Community,

establishing the European

the European
Having regard to Directive 2004/17/EC of
Parliament and of the Council of 31 March 2004 coordinating
the procurement procedures of entities operating in the water,
energy, transport and postal services sectors (1), and in particular
Article 30(4) and (6) thereof,

Having regard to the request submitted by the United Kingdom
by e-mail of 2 November 2005 and confirmed by a signed fax
information
of 8 November 2005, and to the additional
requested by Commission staff by e-mail of 2 December
2005 and submitted by the United Kingdom by e-mail of 12
January 2006,

Having regard to the conclusions of the independent national
authority,
the Gas and Electricity Markets
(OFGEM), that the conditions for the applicability of Article
30(1) of Directive 2004/17/EC would be met,

the Office of

Whereas:

(1)

Article 30 of Directive 2004/17/EC provides
that
contracts intended to enable the performance of one of
the activities to which the Directive applies shall not be
subject to the Directive if, in the Member State in which
it is carried out, the activity is directly exposed to compe-
tition on markets to which access is not restricted. Direct
exposure to competition is assessed on the basis of
objective criteria, taking account of the specific charac-
teristics of the sector concerned. Access is deemed to be
unrestricted if the Member State has implemented and
applied the relevant Community legislation opening a
given sector or a part of it. This legislation is listed in
Annex XI of Directive 2004/17/EC, which, for the elec-

(1) OJ L 134, 30.4.2004, p. 1. Directive as

(EC) No 2083/2005 (OJ

last amended by
L 333,

Commission Regulation
20.12.2005, p. 28).

(2)

(3)

to Directive 96/92/EC of
and of

the
tricity sector,
refers
the Council of 19
European Parliament
December 1996 concerning common rules
the
internal market in electricity (2). Directive 96/92/EC has
been superseded by Directive 2003/54/EC of
the
European Parliament and of
the Council of 26 June
2003 concerning common rules for the internal market
in electricity and repealing Directive 96/92/EC (3), which
requires an even higher degree of market opening.

for

Under Article 62(2) of Directive 2004/17/EC, Title III of
the rules on service design
that Directive setting out
contests does not apply to contests organised for the
in the Member State concerned, of an activity
pursuit,
to which the applicability of Article 30(1) of
the
a Commission
Directive has been established by
decision or has been deemed applicable under
the
second or third subparagraph of Article 30(4) or the
fourth subparagraph of Article 30(5).

the markets of

The request submitted by the United Kingdom concerns
electricity production in England, Scotland and Wales.
Given the unified character of
these
three geographical areas and the limited capacity (4) of
the connections between the United Kingdom networks
and those of other areas of the Community, England,
Scotland and Wales should be considered to constitute
the relevant market for the purposes of evaluating the
laid down in Article 30(1) of Directive
conditions
2004/17/EC. This conclusion is consistent with one of
the
from the
Commission to the Council and the European Parliament:
Report on progress in creating the internal gas and elec-
referred to as the ‘2005
tricity market (5), hereafter
Report’,
terms … electricity …
‘in economic
markets in the EU remain national in economic scope’.

the Communication

findings

that

of

(4)

contained in this
This assessment, and any other
Decision,
is made solely for the purposes of Directive
2004/17/EC and is without prejudice to the application
of the rules on competition.

(2) OJ L 27, 30.1.1997, p. 20.
(3) OJ L 176, 15.7.2003, p. 37.
(4) Of the order of approximately 4 % of peak demand.
(5) COM(2005) 568 final of 15.11.2005.

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Official Journal of the European Union

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The United Kingdom has implemented and applied not
only Directive 96/92/EC but also Directive 2003/54.
Consequently, and in accordance with the first subpar-
agraph of Article 30(3), access to the market should be
deemed not to be restricted.

(8)

(5)

(6)

(7)

Direct exposure to competition should be evaluated on
the basis of various indicators, none of which are, per se,
decisive. In the 2005 Report, the Commission stated that
‘many national markets display a high degree of concen-
impeding the development of
tration of the industry,
effective competition’ (6). Consequently,
it considered
‘one indicator
that,
in respect of electricity generation,
for the degree of competition on national markets is
the
three
producers’ (7). According to the latest available infor-
mation, the aggregate market share of the three largest
generators of the wholesale market is 39 % (8), which is a
satisfactorily low level and should be taken as an indi-
cation of direct exposure to competition.

total market

biggest

share

the

of

to regulate

from other producers

The workings of the balancing markets should also be
considered as indicators. In fact, ‘any market participant
who cannot easily match its generation portfolio to the
characteristics of its customers may find itself exposed to
the difference between the price at which the TSO (trans-
mission system operator) will sell imbalance energy, and
the price at which it will buy back excess production.
These prices may either be directly imposed by the
regulator on the TSO; or alternatively a market based
mechanism will be used in which the price is determined
by bids
their
production upwards or downwards … a key difficulty
for small market participants arises where there is the
risk of a large spread between the buying price from
the TSO and the selling price. This occurs in a number
of Member States and is likely to be detrimental to the
development of competition. A high spread may be indi-
cative of an insufficient
level of competition in the
balancing market which may be dominated by only
one or two main generators. Such difficulties are made
worse where network users are unable to adjust their
positions close to real time.’ (9) Since the introduction
the British Electricity Trading and Transmission
of
Arrangements
there has been a unified
balancing market
for England, Scotland and Wales.
(market based
its main characteristics
Furthermore,
pricing, half-hourly gate closures and a fairly low
spread) are such that it should be taken as an indicator
of direct exposure to competition.

(BETTA)

(6) See the 2005 report, p. 2.
(7) See the 2005 report, p. 7.
(8) See Commission Staff Working Document, Technical Annex to the
2005 Report, SEC(2005)1448, p. 44, table 4.1. Hereafter referred to
as the Technical Annex.
(9) See Technical Annex, p. 67.

the

the

greater

state of

competitive

formation assume

‘a natural
If

Given the characteristics of the product concerned here
(electricity) and the scarcity or unavailability of suitable
substitutable products or services, price competition and
importance when
price
electricity
assessing
markets. The number of customers switching supplier
is an indicator of genuine price competition and, thus,
the effectiveness of
indirectly,
indicator of
there is
competition.
the
likely to be a problem with the functioning of
market, even if the benefits from the possibility of rene-
gotiating with the historical supplier should not be
ignored’ (10). Furthermore,
regulated
key determinant of
end-user prices
is
customer behaviour … Although the
retaining of
controls may be justified in a period of
transition,
these will increasingly cause distortions as the need for
investment approaches’ (11).

few customers are switching,

‘the existence of

clearly

a

(9)

(10)

switching for

the degree of

In the UK,
the three
categories of users – large and very large industrial
users, small and medium-sized industrial and business,
and very small business and household users – is
above 70 % for the first two groups and close to 50 %
for the last category (12) and end-user price control was
abolished in 2002 (13). The situation in the United
Kingdom is therefore satisfactory as far as switching
and end-user price control are concerned and should
be taken as an indicator of direct exposure to compe-
tition.

the extent

In view of these indicators and given the overall picture
this sector in England, Scotland and Wales – in
of
particular
to which networks have been
unbundled from generation/supply and the effective regu-
lation of network access – that emerges from the infor-
mation submitted by the United Kingdom,
the 2005
Report and the Technical Annex thereto, the condition
of direct exposure to competition laid down in Article
30(1) of Directive 2004/17/EC should be considered to
be met in respect of electricity generation in England,
Scotland and Wales. As noted above in recital 5, the
further condition of free access to the activity must be
deemed to be met. Consequently, Directive 2004/17/EC
should not
award
contracts intended to enable electricity generation to be
carried out in these geographical areas nor when they
organise design contests for the pursuit of such an
activity there.

apply when contracting entities

(10) See the 2005 report, p. 9.
(11) See Technical Annex, p. 17.
(12) See the 2005 report, p. 10.
(13) See Technical Annex, p. 177.

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Official Journal of the European Union

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(11)

(12)

This Decision is based on the legal and factual situation
as of November 2005 as it appears from the information
submitted by the United Kingdom, the 2005 Report and
the Technical Annex thereto. It may be revised, should
significant changes in the legal or factual situation mean
that the conditions for the applicability of Article 30(1)
of Directive 2004/17/EC are no longer met.

The measures provided for
accordance with
Committee for Public Contracts,

the

opinion

in this Decision are in
the Advisory

of

HAS ADOPTED THIS DECISION:

Article 1

Directive 2004/17/EC shall not apply to contracts awarded by
contracting entities and intended to enable them to carry out
electricity generation in England, Scotland and Wales.

Article 2

This Decision is based on the legal and factual situation as of
November 2005 as it appears from the information submitted
by the United Kingdom, the 2005 Report and the Technical
Annex thereto. It may be revised, should significant changes in
the facts or the legal situation mean that the conditions for the
applicability of Article 30(1) of Directive 2004/17/EC are no
longer met.

Article 3

This Decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

Done at Brussels, 8 March 2006.

For the Commission

Charlie McCREEVY
Member of the Commission